Analysis by the Center for Strategic and International Studies shows R&D took the biggest hit, dropping by 21 percent in a single year. But payments to large firms and spending on large contracts got some degree of protection.

Big programs at DoD continue to overspend their budgets and blow past their schedules because of unrealistic requirements and rosy cost projections. As part of our special report, The Missing Pieces of Procurement Reform, several acquisition experts pointed out that DoD acquisition is one of the most studied problems in the history of government.

When it comes to lowest price, technically acceptable policies, the Defense Department wants more than "acceptable" for its acquisition services. Even with looming sequestration forcing DoD to stretch financially, Frank Kendall, undersecretary of Defense acquisition, technology and logistics, said the department must incentivize contractors to provide better value as well as best prices.

David Berteau, senior vice president and director of the CSIS National Security Program on Industry and Resources, and Ryan Crotty, fellow with the International Security Program and the Defense-Industrial Initiatives Group, Center for Strategic and International Studies, join Francis Rose on Pentagon Solutions.

Federal spending on services contracts continued a slow downturn last year, according to a new analysis from the Center for Strategic and International Studies. Contract spending on services fell 7 percent -- from $332 billion to $308 billion — between 2011 and 2012. And the downward trend is likely to continue, given budget constraints that are likely to intensify in the coming years, according to David Berteau, senior vice president at the Center for Strategic and International Studies.